Market Overview

A Conversation With Jason Paltrowitz: The IPO Market Is 'A Rising Tide'

A Conversation With Jason Paltrowitz: The IPO Market Is 'A Rising Tide'

This year was always expected to be a big year for IPOs. 

Even before the year started, there were expectations for a number of tech unicorns to headline the 2019 IPO class, including Uber, Lyft (NASDAQ: LYFT) Palantir, Airbnb, Pinterest Inc (NYSE: PINS), Slack, and Postmates. 

So far, investors awaiting new IPOs have not been disappointed. In addition to the two unicorns that have already gone public, three more—Uber, Slack, and Postmates—have filed their S-1’s with the SEC and are expected to IPO in the coming months.

In all, 34 IPOs have priced in 2019 and 60 companies have filed their intent to go public with the SEC. While the number of pricings is down on a year-over-year basis (a possible consequence of January’s government shutdown), 2019’s 60 filings mark a 3 percent increase over this point in 2018, according to Renaissance Capital. 

While the early performance of these IPOs has been mixed—companies like Zoom Video Communications Inc (NASDAQ: ZM) and Jumia Technologies (NYSE: JMIA) have soared, while Lyft is down 30 percent from the high set in its highly anticipated listing. “The fact that so many companies that have talked about going public for the past few years are finally taking steps to do so is a positive development,” according to Jason Paltrowitz, EVP of Corporate Services at OTC Markets Group.

“The Lyfts and Levi Strauss & Co. (NYSE: LEVI) of the world are good for the capital markets generally, and the transparency, openness and disclosure that comes with that is good for the general public.”

Paltrowitz noted that OTC Markets had a record year in 2018 in terms of the number of new companies that joined their markets, including a 9 percent increase in new securities on the OTCQX Best Market, the premium trading tier of their market. 

Paltrowitz recently attended a panel on the state of IPO’s at the Security Traders Association of New York’s Annual Conference, and the sentiment, he said, was that “a rising tide lifts all boats.”

“There is a lot of excitement in that 2019 is seeing this huge pickup in IPOs. The markets had a good first quarter, and companies like to go to the public markets when the markets are on a good run,” he said. 

‘More Public Companies Are A Good Thing’

Paltrowitz believes that going public benefits everyone involved in the public equity markets no matter the route they take, whether it’s companies going public via the traditional IPO method, a direct listing, or a Slow-PO on OTC Markets.

Messaging app Slack has reportedly filed for a direct listing, following Spotify Technology’s (NYSE: SPOT) successful direct listing last year. 

“More public companies are a good thing; you want companies to go public,” he said. “Some companies may not need the money and therefore choose to go the route of a direct listing, without a capital raise. Spotify didn’t need the money but is now freely tradeable, open and transparent, the entire world can see every quarter what Spotify is doing. That’s good for its investors and the general public at large that would like to participate in its growth. 

“Slack and Spotify don’t need the money why should they be forced to raise money they can’t efficiently deploy? That would be a waste of resources. If exchanges fighting it out to get direct listings means that more companies go public, that’s great for all of us.”

The Slow-PO is similar to a direct listing, in that a company goes public on OTC Markets without raising additional capital. Most notably done by the Grayscale Bitcoin Trust (BTC) (OTCQX: GBTC) in 2015, along with community banks Merchants & Marine Bancorp Inc. (OTCQX: MNMB), Bank of San Francisco (OTCQX: BSFO), SVB&T Corporation (OTCQX: SVBT) and FineMark Holdings, Inc. (OTCQX: FNBT) in 2018, Slow-POs allow companies to make previously restricted shares available for public trade while avoiding the costs of underwriting, SEC registration, and exchange listing fees

“In contrast to traditional IPOs, a ‘Slow PO’ through OTC Markets provides companies with a pathway to enter the public markets by making previously restricted shares available for public trading by brokers on the OTCQX, OTCQB, and Pink markets,” said Jason Paltrowitz, OTC Markets Group’s Executive VP of Corporate Services.”

‘Retail Was Saved’ With Lyft

A common criticism of IPOs is that retail investors don’t really get to participate. But if the weakness of the Lyft IPO, the largest IPO in the first quarter of 2019, left a bad taste in some investors’ mouths, Paltrowitz believes it’s to the retail investor’s benefit.

“It was hard for retail investors to participate in Lyft. This was a big IPO, which like all the other big IPOs, gets allocated mostly to large buy-side firms. For example, if I was able to participate in that IPO, and I received my shares at $79, I’d be pretty upset right now. If I’m the retail investor that could only participate by way of the secondary market, I now can get in at $60.”

The IPO Market Will Be Strong As Long As Companies Are Getting Top Dollar

Though the private markets are still vibrant, and valuations are high, Paltrowitz said he expects the IPO market to stay healthy for the time being. 

“If I look at the companies on our market, they are out in the private market aggressively raising money and getting deals done,” he said. “A lot of that is sectoral, and currently, a lot of capital that’s being raised is in the cannabis space.

“People come to the market when they think they can get top dollar,” he said. “And, right now, we’re in a place where you can get top dollar and where the multiples are high.”

OTC Markets is a content partner of Benzinga


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